Confiscation Order Quashed as Section 130 Action Requires Prior

Confiscation Order Quashed as Section 130 Action Requires Prior Tax Determination Under Section 73 or 74

Issue

Whether the revenue department can validly initiate confiscation proceedings under Section 130 for excess stock and record-keeping defects without first determining tax liability under Section 73 or Section 74 of the GST Act.

Facts

A search operation conducted at the business premises of the assessee led the revenue department to allege the presence of excess stock and lapses in regular record-keeping.
During the search, an amount was recovered from the assessee through FORM GST DRC-03.
The department subsequently issued a Show Cause Notice (SCN) under Section 130 read with Section 122 of the GST Act, proposing the confiscation of goods and the levy of a penalty for the alleged violation of record-keeping provisions under Section 35.
Following the SCN, a formal confiscation order was passed under Section 130(1)(i) read with Section 122, and FORM GST DRC-07 was uploaded to reflect the tax demand.
The assessee filed a writ petition before the High Court, directly challenging the fundamental jurisdiction of the department’s confiscation action.

Decision

Held, yes: The law is firmly settled that confiscation proceedings under Section 130 cannot be initiated by the department without a prior, formal determination of tax liability under Section 73 or Section 74.
Held, yes: Because the SCN was issued without any prior tax determination, the entire initiation of the confiscation proceedings was completely without jurisdiction.
Held, yes: A notice under Section 130 cannot be legally issued for an alleged violation of record-keeping under Section 35; therefore, the proceedings founded on account defects are legally unsustainable.
Held, yes: The impugned SCN and the resultant confiscation order are entirely quashed, with liberty granted to the department to proceed afresh in accordance with the law under the relevant provisions.
Held, yes: The prayer made by the assessee for a refund of the amount recovered during the search is left open to be pursued in accordance with the established legal procedure.
In favour of assessee: The case is decided entirely in favor of the assessee.

Key Takeaways

No Direct Recourse to Confiscation: Tax authorities cannot bypass the standard adjudication route. Determining tax under Section 73 (non-fraud) or Section 74 (fraud) is a mandatory condition precedent before invoking the severe confiscation powers of Section 130.
Account Deficiencies Do Not Equal Confiscation: Simple administrative lapses in maintaining accounts and records under Section 35 do not automatically give the department the jurisdiction to confiscate goods under Section 130.
Jurisdictional Defects Nullify Orders: An order passed without satisfying basic statutory prerequisites is inherently void, and the High Court will intervene under writ jurisdiction to quash such non-jurisdictional tax demands.

HIGH COURT OF ALLAHABAD

Kvn Fmcg (P.) Ltd.

State of U.P.^*

Shekhar B. Saraf and ABDHESH KUMAR CHAUDHARY, JJ.

WRIT TAX No. 720 of 2026

MAY 18, 2026

Pranjal Krishna, Aman Prakash and Ankit Mishra for the Petitioner.

ORDER

1. Heard Shri Pranjal Krishna, learned counsel appearing for the petitioner as well as Shri Sanjay Sarin, learned Standing Counsel for the State respondent(s) and Shri Atul Kumar Singh, Advocate, who has filed his ‘memo of appearance’ on behalf of the respondent No.3 in Court today, which is taken on record.

2. This writ tax has been filed by the petitioner with following main prayer(s):

“A.

Issue a writ, order, or direction in the nature of certiorari quashing the Show Cause Notice dated 12.02.2026 Annexure No.-8 issued under Section 130 read with Section 122 of the CGST/UPGST Act, 2017, as being without jurisdiction, contrary to law, and in violation of the principles of natural justice;

Issue a writ, order, or direction in the nature of certiorari quashing the final order dated 27.02.2026 Annexure No.-9 passed under Section 130(1)(i) read with Section 122 (as reflected via DRC-07 uploaded on 09.03.2026), whereby the alleged excess goods were ordered to be confiscated and penalty/fine were imposed;

Issue a writ, order, or direction in the nature of certiorari quashing the Form GST DRC-07 dated 09.03.2026 Annexure No.10 insofar as it arises out of the aforesaid illegal confiscation proceedings;

Issue a writ, order, or direction in the nature of mandamus commanding the Respondents to refund forthwith all amounts recovered through DRC-03 during search proceedings (totaling approximately Rs. 64,91,007/-) together with applicable interest at the statutory rate;

Declare that the proceedings under Section 130 of the CGST/UPGST Act, 2017 were jurisdictionally barred at the threshold as they were initiated on the basis of alleged stock discrepancy and violation of record-keeping requirements without any prior determination of tax liability under Sections 73/74 of the Act, and consequently, the entire proceedings and the impugned orders are void ab initio.”

3. Learned counsel for the petitioner relying on the following judgments (i) Metenere Ltd. v. Union of India (Allahabad)/Writ Tax No.360 of 2020, (ii) Maa Mahamaya Alloys (P.) Ltd. v. State of U.P. [2023] 97 GST 1086/73 GSTL 612 (Allahabad)/Writ Tax No.31 of 2021, (iii) Dayal Product v. Additional Commissioner Grade-2 98 GSTL 351 (Allahabad)/Writ Tax No.1319 of 2024 , (iv) Additional Commissioner Grade-2 v. Dayal Product 102 GSTL 193 (SC)/SLP (C) Diary No.44119 of 2025, (v) Additional Commissioner Grade-2 v. Shree Om Steels (SC)/SLP (C) Diary No.1968 of 2025 (vi) Additional Commissioner Grade-2 v. Dinesh Kumar Pradeep Kumar (SC)/SLP (C) Diary No.5879 of 2025 submits that notice under Section 130 of the Uttar Pradesh Goods and Services Tax Act, 2017 (hereinafter referred to as ‘Act, 2017’) cannot be issued for alleged violation of Section 35 of the Act, 2017.

4. He further relies on the judgement passed in the case of M/s Maa Mahamaya Alloys Pvt. Ltd. (supra) to submit that the notice under Section 130 of the Act, 2017 can only be issued, once liability to pay tax is determined by the Department under Section 73 or 74 of the Act, 2017.

5. Thirdly, he submits that the present writ petition is maintainable against the show cause notice as the same has been issued without jurisdiction. He further submits that the judgement of Hon’ble Supreme Court in Whirlpool Corporation v. Registrar of Trade Marks (1998) 8 SCC 1 would apply in the present case and the petitioner is covered by the exceptions as show cause notice is without jurisdiction.

6. He also relies upon the judgments passed in Siemens Ltd. v. State of Maharashtra (2006) 12 SCC 33 andHcl Infotech Ltd. v. Commissioner, Commercial Tax 106 GST 325/90 GSTL 233 (Allahabad)/Writ Tax No. 1396 of 2024 to buttress his arguments.

7. Learned counsel for the respondents has primarily argued on the point of maintainability of the writ tax at the show cause notice stage.

8. However, we are of the view that since the law is no longer res integra with regard to the proceedings to be initiated under Section 130 of the Act, 2017 without determination of tax under Section 73/74 of the Act, 2017, the present show cause notice issued under Section 122 read with Section 130 of the Act, 2017 is without jurisdiction.

9. Having held that the notice that has been issued without jurisdiction, we are bound to intervene in the said matter and decide the issue of jurisdiction.

10. Upon perusal of the judgments relied upon by learned counsel for the petitioner, we unequivocally come to the conclusion that the present notice issued under Section 130 of the Act, 2017 cannot be issued in alleged violation of the Section 35 of the Act, 2017 and the proceedings initiated by the department are accordingly without any jurisdiction and law.

11. In light of the settled position, we quash and set aside the impugned show cause notice dated 12.02.2026. The department shall be at liberty to proceed in accordance with law against the petitioner by issuing a fresh show cause notice under relevant provisions of the Act, 2017. Pursuant to the order passed by this Court, the impugned confiscation order dated 27.02.2026 is also quashed and set aside. With regard to the prayer of refund of amount of Rs. 64,91,007/- (Rupees Sixty Four Lacs Ninety One Thousand Seven only), the petitioner is at liberty to proceed in accordance with law.

12. With the above observations, instant writ tax is disposed of.